The nomination of Kevin Warsh to serve as the next Chair of the Federal Reserve from May pushed the US dollar slightly higher, while gold and silver fell sharply in a deleveraging move that began in Asia.
Although the decline was severe, the initial surge since early January was equally notable. Against this backdrop, equities remained resilient, underpinned by a week of earnings results. As at Friday, 75% of reporting companies had beaten consensus expectations, and earnings will remain in focus this week.
Market recap
Beyond the numbers
Macroeconomics
In the last week, the Fed’s FOMC kept rates unchanged at 3.50–3.75% as expected, but two governors dissented, coming out in favour of a 25-basis point rate cut. The statement on the economy was more positive than in December, as activity was viewed to be on a solid trend and the labour market has stabilised. The press conference remained slightly dovish, as a small easing bias remained in place. Downside risks on labour have receded, and upside risks on inflation have also diminished. President Trump nominated Kevin Warsh as the next Fed chair (he is due to take office in May).
Economic indicators such as Richmond and Chicago PMI were better oriented on industry, and factory orders remained on a rising trend. Productivity gains were sustained in Q3 25, up by 4.9% q/q, and labour costs declined by 2.0% q/q. A negative surprise came from falling consumer confidence (Conference Board index), with concerns about high inflation and lower future activity.
In the eurozone, activity was more sustained than expected in Q3 25, with GDP up by 0.3% q/q for the whole area, up by 0.3% q/q in Germany and Italy, 0.8% q/q in Spain and 0.2% q/q in France. Confidence (January index) has improved in industry and has gained ground in services and for consumers. Labour data were generally positive, with falling unemployment in the eurozone generally (ratio at 6.20%) and in Spain in particular (9.93%).
US payroll data (January) are set to be published this week and are expected to be up by 65,000, while the unemployment ratio should remain stable at 4.4%. Final ISM-PMI business sentiment should confirm the constructive sentiment and sustained growth trend.
Final PMIs will be released for all countries. In the eurozone, preliminary inflation should show prices well below the 2% reported in January, but the European Central Bank (ECB) is not expected to change its policy at the meeting. Other central banks will also hold their regular meetings (the Bank of England (BoE), Reserve Bank of India, National Bank of Poland and Reserve Bank of Australia).
Asset allocation: strategic views as at February 2026
Equities
Global equities registered gains last week (MSCI ACWI total return +0.7%) despite a barrage of headlines (US–Iran tensions, Fed Chair nomination, US macro data), earnings-related price action, and a sell-off in precious metal prices. While volatility increased across commodities and currencies, equity indices remained relatively resilient, with the market’s fear gauge (the VIX Index) staying subdued at under 20.
The global materials sector was among the weakest performers, declining -1.2% as gold miners suffered a steep -12.0% drop. In contrast, the energy sector surged by +4.2%, making it the best-performing sector year-to-date (+11.7% as at Friday). This rally has been driven by geopolitical tailwinds that have bolstered oil prices (Brent Crude +6.7% last week, +16.1% year-to-date), even as sector fundamentals remain weak, in our view.
Within the Magnificent 7, Microsoft tumbled by -10.0% post-earnings, while Meta surged +10.4%. Despite these opposing moves, the group managed a +1.0% gain for the week, providing critical support to the benchmark US index: the S&P 500 rose +0.3% (vs. the S&P 500 Equal Weighted -0.4%), briefly crossing the 7,000 threshold intraweek.
As at Friday, 33% of S&P 500 constituents had reported their Q4 results, with a 75% beat rate. Q4 Earnings Per Share (EPS) growth is now expected to reach +11.9% vs. +8.2% a week ago, supporting market views of a choppy grind higher as corporate fundamentals remain robust.
In the week ahead, earnings continue to remain at the forefront, with 25% of the S&P 500 set to publish figures, including the Magnificent 7. Geopolitical developments will also remain in the spotlight, adding another layer of complexity for investors to navigate.
S&P 500 Q4 EPS growth estimates have been revised sharply upwards, with expectations now calling for +11.9% vs. +8.2% a week ago.
Fixed income
Last week, Treasuries, investment-grade corporates, and AT1s each gained 0.2%, emerging markets added 0.1%, and high-yield (HY) slipped 0.1%. HY spreads widened by 20 bps from post-great financial crisis lows amid elevated volatility, but overall moves remained contained. 10-year Treasuries ended the week flat, while the short end eased by 9 bps to 3.50%, reflecting the market's reaction to Kevin Warsh's nomination as Federal Reserve Chair.
Fed news dominated, with President Trump nominating Kevin Warsh to succeed Jerome Powell in May. Market expectations for rate cuts ticked up slightly on the news, but are still assuming around two cuts for 2026. Warsh has pushed for a smaller Fed footprint, opposing balance sheet expansion, although we note current conditions put a high bar in place for restarting quantitative tightening (i.e. balance sheet reduction). Traditionally viewed as a hawk, Warsh’s stance has become more dovish in recent years, having publicly supported aggressive rate cuts in late 2025 and early 2026, citing AI-driven productivity gains that could curb inflation without job losses or a recession. His upcoming interviews should clarify how he asserts these views.
This week's focus is on the ECB and BoE rate decisions on Thursday (5 February), with no changes anticipated.
Markets are still assuming around two rate cuts for 2026.
Forex & Commodities
The USD rose modestly following the announcement of Kevin Warsh as US President Trump’s nominee to become the Chair of the US Federal Reserve. Warsh is known to favour lower interest rates, based on the assumption that US productivity growth should contain inflationary pressures. The main event over the coming week will be the publication of US labour market data, namely the JOLTS, ADP and US NFP data for January. The market will once again likely favour a weaker USD on any drop in the JOLTS vacancy rate. We do not believe that the small bounce in the USD is likely to be sustained.
The BoE will meet on Thursday, and markets anticipate that it will keep rates on hold at 3.75%. Overnight index swaps (OIS) have priced in an unchanged stance with a 98% probability. We anticipate that the BoE’s inflation report should reduce its inflation projection slightly; however, the Monetary Policy Committee (MPC) is likely to acknowledge the mixed signals coming from the labour market. Overall, we do not envisage any significant GBP moves.
The Reserve Bank of Australia (RBA) will meet on Tuesday, and markets have priced in a 25-bp rate hike with a 72% probability. There are good reasons for a rate hike, given that headline inflation is running well above the RBA’s target. The MPC will likely issue hawkish guidance, consistent with current OIS pricing. The AUD/USD should remain well bid in our view, giving upside risks above 0.70.
Gold and silver traded substantially lower last week and in early trading on Monday in a deleveraging move that began in Asia. The correction has been severe, but so too has the initial price rise since early January. We note that this is the first significant correction to the gold rally since 2020. The lessons of the 1970s are that these corrections were rarely sustained and proved to be decent buying opportunities. We note that the gold–silver ratio has corrected towards levels of around 60, signalling that there is not too much downside for silver prices from current spot levels (USD 77 per oz). The underlying volatility backdrop is still exceptionally elevated for both metals, meaning that data releases should not have a pronounced effect on spot pricing in the near term.
The lessons of the 1970s are that corrections on gold were rarely sustained and proved to be decent buying opportunities.
The opinions expressed herein are correct as at 2 February 2026 and are subject to change without notice. This information should not be relied upon by the reader as research or investment advice regarding any particular fund, strategy or security. Past performance is not a guide to current or future results. Any forecast, projection or target, where provided, is indicative only and is not guaranteed in any way.
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